Newsmaker: Can 3D TV put Philips back on the map?

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How does this manifest itself on the product design level?
Provoost: The sense and simplicity brand promise contains three major cornerstones: The product needs to be designed around the consumer; it has got to be a unique experience; and it has got to have an advantage, some innovation, and not tech for its own sake.

If you take a product like an Ambilight TV, the three things merge together. It is a great design. It is a great immersive experience, and you see the results on the screen. If you take our sales right now of all flat TVs above 42 inches, one of two is an Ambilight TV.

Do you license the technology?
Provoost: No, we use it for our own purposes.

What will be the big product categories for Philips?
Provoost: We have four elements. First, connected displays. That is $5 billion of the $10 billion. Then the second part is the entertainment solution. That includes surround sound home theater systems as well as MP3 players and home video. The third part is networking: voice over Internet Protocol and IPTV (Internet Protocol television). We are close to the Microsoft's. That's where we made some inroads with leading operators in Europe--like British telecom. In North America, we work with DirecTV.

At the end of the day, a consumer wants to enjoy HD content. You need a format for that.

And the last area is peripherals and accessories. The Nokias, the iPods of the world, all need accessories. It's high margin and high growth. One example is the acquisition of Gemini. Gemini was a leading cable company in the States, a $200 million company. We acquired the company three years ago.

What's different than in the past is that we are reaching out to other companies. That is different than the Philips of the past. We are working very closely with the studios in the Blu-ray discussions. Companies like Fox and Disney are our partners. We are reaching out to the operators. Over time, you could think about premium downloadable software or prepackaged media.

LCD (liquid-crystal display), SED (surface conduction electron emitter display) or plasma--where do you stand?
Provoost: We are very much believers in LCD. It will be the growth of the market. In the 42-, 47-inch area there will be space for plasma, but with our partnership with LG in LCD we believe we are well-positioned.

LCD will go up in size, and the whole flat TV market will of course will grow. We think LCD will double this year compared to last year in volume. But we do have a plasma offering. A lot of lamplight TVs are plasma.

We also have a pretty aggressive innovation road map. If you want to bring high definition to the next level, we think that might be three-dimensional television.

What's that?
Provoost: You watch TV and get a three-dimensional effect. I don't want to make too much of a promise, but somewhere in the next 24 months we want to bring that to market. The neat thing is that if you have high-definition content, like a Blu-ray disk, then you can enhance that viewing experience with 3D algorithms. So you can you use two-dimensional HD content for 3D viewing. That is the first phase. The second phase is making 3D content. This is the next-generation TV we are working on at the moment.

Why is the fight between the HD-DVD and Blu-ray camps so volatile? Is there more going on here than engineering pride?
Provoost: At the end of the day, a consumer wants to enjoy HD content. You need a format for that. The whole discussion is over which format will prevail. We believe that Blu-ray has a lot of advantages over HD. It has to do with copy protection, capacity, coating, costs, convenience, interactivity, menu management, navigation, affordability, and most importantly support.

It is like in the CD and DVD days. Increasingly, there is so much intellectual property in there, and everyone looks for a fair reward.

What we are very pleased with is the progress in the past few months. Some of the studios have been Blu-ray and always will be Blu-ray. Some of them are HD. But now some of them are saying they will support Blu-ray, too. So if you are a consumer and you know that three and four of the studios are betting on Blu-ray and the fourth is betting on both, then you know which format to choose. Blu-ray will always be there.

I was very pleased that Michael Dell announced that Dell will support the Blu-ray format. What we are trying to do now is get the studios to get their video assets turned into the Blu-ray format.

In the second half we will launch a Blu-ray player, and then in the first half of 2007 we will launch a triple writer than can handle CD, DVD and BD.

OK, but why is there such a fight going on? Is there a large potential for royalties?
Provoost: There are so many players involved, from content creators, to content aggregators, to broadcasters to manufacturers, and ISPs and the Microsofts and Intels of this world. It's tough to get all these parties to agree, and they all have intellectual property interests.

Clearly there is a lot of intellectual property that went into this, so companies like Philips and Toshiba and Sony all look for a return on the investment. That is what is making the debate a challenging debate.

It is like in the CD and DVD days. Increasingly, there is so much intellectual property in there, and everyone looks for a fair reward.

Do you think customers will get confused? In a lot of ways, this is worse than the old debate between Betamax and VHS. When people are buying movies, they can probably remember if they have a Blu-ray or HD at home, but it will also affect what kind of computer they can buy.
Provoost: From a consumer perspective, the best thing would be that there is one format, but I don't know if that will be the reality. You will have to follow the logos.

But this will limit people's choices.
At the end of the day as a consumer, you have to make choices. Look at our MP3 players. They have "plays for sure." If you make a conscious choice about that, and you have Windows XP Media Center, then you have a perfect combination.

With Blu-ray, yes, there are choices that will be made. I guess a year from now at the Consumer Electronics Show a lot of the questions that are still on the table will have to be answered. Today there is polarization. Over the next year some of that polarization will narrow down, I think.

This year we all put our stakes in the ground and said, "Go." Well, let's go and learn and adjust.

Some people claim that Blu-ray players will cost more because of manufacturing issues and other factors. Is that the case?
Andy Siegel of Fox is very passionate about this. There are many ways to look to costs and express costs. In their view, the cost equation over the longevity of the format is absolutely the best with Blu-ray.

There are calculations you can make. We are convinced that over a consumer lifetime perspective, it is the best proposition.  

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